The two-year investigation had focused on Joseph Cassano, the man formerly in charge of AIG's Financial Products division, and his deputy Andrew Forster, while also looking into the conduct of several other executives.
It was their unit which nearly took AIG into bankruptcy at the height of the financial crisis, when it backed tens of billions of dollars on mortgage-backed complex securities products which turned out to be toxic.
The criminal probe into the two men looked into allegations that the pair deliberately misled investors about the extent of AIG's exposure to these risky investments.
Government officials reportedly focused upon an investor presentation given by Mr Cassano in December 2007 in which he said the insurer's losses on credit default swap deals should not cause undue concern among clients.
In the 12 months following the speech, AIG had to take more than $40 billion worth of writedowns on the swaps, as well as putting up billions more in collateral to counterparties which included Goldman Sachs.
Mr Cassano left the firm in March 2008 as its financial position got worse, culminating later that year in a $182 billion government bailout of AIG.
Lawyers for Mr Cassano said their client was pleased the investigation against him had been dropped.
"Although a two-year, intense investigation is tough for anyone, the results are wholly appropriate in light of our client's factual innocence," a statement said.
David Brodsky, a lawyer for Mr Forster, stated: "In the end, the facts were stronger than the emotions surrounding AIG's problems."
Earlier this year, the majority of staff in AIG's Financial Products unit agreed to have their bonuses reduced by up to 20 per cent in return for receiving them early.
The move is said to have saved the firm around $20 million.
By Gary Cooper